When we say that a person is “principled,” we generally mean that they live their life based on a strong underlying ethic — a set of beliefs about proper behavior toward other people, and a commitment to stick to those beliefs even when tempted to act otherwise.

But what does it mean to say that an organization is principled?

I’d like to suggest that four things probably need to be true:

People within the organization treat each other, and those with whom they interact on behalf of the organization, in a clearly principled and trustworthy way.

The products and services created by the organization provide real personal and societal benefits, and the organization takes responsibility for any unintended negative consequence that result from the production or use of those products and services.

The policies, strategies, operations, ownership and other structures of the organization reflect a set of principles that are understood and observed by all those in decision-making and governance positions.

That percolating through all three of the above is a recognizable and common set of principles that can be reasonably articulated and observed by all participants in the organization.

In short, there has to be an underlying integrity to everything that the organization is and does, just like we expect of a principled individual.

The current environment of constantly increasing transparency of organizational actions is driving many companies to work hard on the the first two requirements. And it is well worth the effort.

But the last two are required to institutionalize whatever is gained in the first two. Inconsistency will undo the goodwill and trust that has been built.

Organizations are merely a system of agreements among people. So, for an organization to be principled, both its people and its system of agreements — from top to bottom — must be principled as well.